Wednesday, June 03, 2009
latvia funding crisis
In an overlooked piece of data, indicating that the 3 month rally is likely done, yesterday EU-member Latvia saw its overnight interbank rate surge to a record 16.4% while the overnight deposit rate double to 24% after the country was unable to sell any debt securities at a local debt auction, according to its main stock exchange. The Latvian Treasury had offered to sell 20 million lats ($20 million) of July maturities, 10 million of September, December and June 2010 paper. None of this paper found any buyers.
i twittered a couple eastern europe articles from ft alphaville on the train this morning: latvian devaluation has moved into the realm of anticipated certainty with many voices supporting it. one has to imagine estonia and lithuania, and perhaps others, will follow with a little time.
UPDATE: more via alphaville -- the ripple effect into swedish currency.
UPDATE: alphaville again passing on the views of the shop of BH2, which is frankly almost sickening if correct.
Currencies all across Emerging Europe are set to weaken, some from already depressed levels; with 25% a conservative forecast for the declines we expect for ERM II currencies, although we would not be surprised if the outcome was twice or even three times this. The whole of Emerging Europe will be drawn into this renewed crisis, from Poland and Bulgaria within the EU to Croatia and Serbia outside it. This assertion will seem at odds with the localised nature of recent currency weakness, and the calm which has followed. True, concerted financial help from outside and promises of thrift from within have combined to usher in a period of stability. Do not be drawn in by this.